WEBVTT - King Street's Brian Higgins On Navigating Distressed Markets 0:00:02.400 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:09.560 --> 0:00:13.520 This is Master's in Business with Barry red Holds on 0:00:13.760 --> 0:00:15.160 Bloomberg Radio. 0:00:16.120 --> 0:00:19.520 I'm Barry Ridults. You're listening to Masters in Business on 0:00:19.560 --> 0:00:23.040 Bloomberg Radio. This week on the podcast What Can I Say? 0:00:23.320 --> 0:00:28.160 Brian Higgins has put together an amazing track record handling 0:00:28.320 --> 0:00:33.080 distressed and stressed debts as well as other forms of credit, 0:00:33.600 --> 0:00:39.040 real estate, collateralized obligations. King Street is a fascinating firm. 0:00:39.120 --> 0:00:42.560 It was formed in nineteen ninety five. Over the course 0:00:42.600 --> 0:00:45.760 of the past I don't know, twenty five years, they've 0:00:45.840 --> 0:00:50.080 put together really an impressive track record. They have already 0:00:50.159 --> 0:00:54.920 returned about eighty percent of the net gains they've had 0:00:55.000 --> 0:00:59.320 to their limited partners. Really, there are a few people 0:00:59.320 --> 0:01:03.600 in the world who have a better sense of distress, asset, credit, 0:01:03.680 --> 0:01:07.760 real estate, and how to not only do the fundamental research, 0:01:08.200 --> 0:01:13.839 but tactically trade around the positions. As an example, institutional 0:01:13.840 --> 0:01:18.160 investors mentioned King Street in twenty twenty two, perhaps the 0:01:18.200 --> 0:01:23.080 worst year for hedge funds since eight o nine. They 0:01:23.080 --> 0:01:25.759 were down three point eight percent. Their benchmarks were down, 0:01:26.160 --> 0:01:29.560 you know, fixed income was fifteen percent, equities was twenty 0:01:29.640 --> 0:01:34.319 something percent. To be low single digits is really just 0:01:34.560 --> 0:01:39.080 a testament to their performance. U there are a few 0:01:39.120 --> 0:01:45.720 people who are more knowledgeable about fixed income, credit, real 0:01:45.840 --> 0:01:50.600 estate and distressed investing than Brian Higgins. I found this 0:01:50.680 --> 0:01:54.040 conversation to be fascinating, and I think you will also, 0:01:54.160 --> 0:01:59.920 with no further ado, King Streets Brian Higgins. 0:01:58.760 --> 0:02:00.680 Well, thank you very much, Barry me. 0:02:00.840 --> 0:02:02.720 I appreciate you being here. I've been looking forward to 0:02:02.800 --> 0:02:06.240 this conversation for a while. Let's jump right into it. 0:02:06.680 --> 0:02:10.640 You get a bachelor's in business administration from Villanova University. 0:02:10.960 --> 0:02:13.280 What was investing always the career plan? 0:02:13.760 --> 0:02:16.480 Well, actually I started out electrical engineering. 0:02:16.680 --> 0:02:18.680 Me too. That's funny you say that first first. 0:02:18.520 --> 0:02:21.600 Two years electrial engeering. You graduate from high school. I'm 0:02:21.600 --> 0:02:24.360 good at math and science, and you know, I always 0:02:24.400 --> 0:02:26.560 had an idea with go into business, but I felt 0:02:26.600 --> 0:02:30.720 that electrical engeering would be a good foundation, and that's 0:02:30.720 --> 0:02:33.720 what I started at. But after two years it was 0:02:33.760 --> 0:02:37.280 sort of not very interesting, and I was intrigued by 0:02:37.320 --> 0:02:39.480 the markets at the time. In the mid eighties, you 0:02:39.520 --> 0:02:40.959 had a lot of stuff going on in terms of 0:02:40.960 --> 0:02:45.240 the merger boom, and Wall Street was rocking, and I said, hey, 0:02:45.280 --> 0:02:47.400 this is sort of interesting. I was probably the only 0:02:48.480 --> 0:02:51.000 electrical engeering major that had a subscription to the Wall 0:02:51.000 --> 0:02:56.960 Street Journal. So my roommate, who was a mechanical engineer, 0:02:56.960 --> 0:02:58.359 said to me, what are you doing. Why don't you 0:02:58.360 --> 0:03:01.280 just switch over to finance, which I said. 0:03:01.000 --> 0:03:03.560 Sure, makes makes a lot of sense. So you come 0:03:03.600 --> 0:03:06.160 out of Villanova, you end up at First Boston in 0:03:06.280 --> 0:03:10.239 nineteen eighty seven in the special Situations fund and distressed 0:03:10.320 --> 0:03:11.200 securities group. 0:03:11.320 --> 0:03:13.320 Yeah, we started out. I started out banking the two 0:03:13.360 --> 0:03:16.840 year banking program, which merchant banking was the group I 0:03:16.960 --> 0:03:20.120 was in. My co founder was an analyst. He came 0:03:20.120 --> 0:03:22.720 out of Yale. He was in the Bankruptcy Advisory group. 0:03:22.760 --> 0:03:26.440 So we're in the analyst program together, sixty five of us. 0:03:27.240 --> 0:03:31.720 And after two years I went down to trade distress Proprietarily, 0:03:31.760 --> 0:03:33.960 I got promoted to associate without going to business school. 0:03:34.360 --> 0:03:37.720 I had done an undergraduate business and felt that, you know, hey, 0:03:37.760 --> 0:03:39.480 I can do this, but I want to get some 0:03:39.640 --> 0:03:42.680 different just rather being the analyst that never left. I 0:03:42.720 --> 0:03:44.920 want to get some markets experience, but you know, stay 0:03:44.960 --> 0:03:49.320 in the proprietary side. So there was a proprietary trading 0:03:49.520 --> 0:03:53.680 group that was forming and I was joined that, and 0:03:53.960 --> 0:03:57.080 it was an interesting time in high yield as you know, 0:03:57.120 --> 0:04:01.400 shortly thereafter Drexel, which goes from one day issuing commercial 0:04:01.440 --> 0:04:03.440 paper and the next day they go bankrupt. 0:04:04.600 --> 0:04:07.800 So what was it like trading distress securities in the 0:04:07.880 --> 0:04:10.720 late eighties that had to be you know, a pretty 0:04:11.560 --> 0:04:13.240 let's call it target rich environment. 0:04:13.520 --> 0:04:18.200 Well, I would say it was interesting because the Marcus 0:04:18.200 --> 0:04:21.960 sophistication that we have today in terms of really the 0:04:22.000 --> 0:04:26.680 fluidity of capital, structures, of trading desks, et cetera, seamlessness 0:04:26.680 --> 0:04:28.800 which you had, you had. It was interesting. You'd see 0:04:28.800 --> 0:04:31.800 things go from say the investment grade market to the 0:04:31.880 --> 0:04:35.039 high yield market. There was a big disconnect as they 0:04:35.120 --> 0:04:39.560 move positions that started to trade wider. The buyers didn't 0:04:39.600 --> 0:04:42.839 have the ability to go cross assets and a cross 0:04:43.160 --> 0:04:46.320 let's say ratings as they are today. You know, mutual 0:04:46.320 --> 0:04:50.159 funds were very siloed and now they're a bit wider mandates. 0:04:50.560 --> 0:04:54.080 So it was yes, you had you know, ni CE 0:04:54.240 --> 0:04:58.120 ratings changed for insurance companies post Drexel, and so there 0:04:58.200 --> 0:05:02.400 was a number of less liquid markets that made for 0:05:02.680 --> 0:05:06.039 quite wide spreads. You had a default cycle, so you 0:05:06.120 --> 0:05:09.040 had trading with the crude and trading flat, and so 0:05:09.080 --> 0:05:12.040 there was certainly a number of different movements, but there 0:05:12.080 --> 0:05:17.160 was certainly downside of these things. So one had to 0:05:17.160 --> 0:05:23.320 be very rigorous in your investing, in your analysis to 0:05:23.400 --> 0:05:24.080 do the investing. 0:05:24.640 --> 0:05:28.240 So you're at a big bank in eighty seven, you know, 0:05:28.320 --> 0:05:31.239 obviously there were a lot of market dislocations later that year. 0:05:31.720 --> 0:05:34.080 What was that experience like for you? It was. 0:05:36.200 --> 0:05:40.760 Interesting. I mean, it certainly was indoctrination into the world 0:05:40.800 --> 0:05:43.600 of finance. You go from you know, these big parties 0:05:43.680 --> 0:05:46.440 during the summer as you welcome to the new analysts, 0:05:46.440 --> 0:05:49.719 to the market crash obviously in October of eighty seven. 0:05:50.440 --> 0:05:53.880 I think the volatility that ensued and then you know 0:05:53.920 --> 0:05:56.040 the world's going to end, and then you know it 0:05:56.440 --> 0:06:00.560 comes back. I think that just spoke to the resiliency markets, 0:06:00.800 --> 0:06:04.440 but also the certainly the volatili and fragility of certain 0:06:04.440 --> 0:06:08.000 sectors that one has to be mindful of. And you know, 0:06:08.040 --> 0:06:10.520 I think ultimately there was a number of opportunities that 0:06:10.560 --> 0:06:12.880 came out. I had no money back in eighty seven, 0:06:12.960 --> 0:06:15.919 but certainly, you know, some of the maging directors and 0:06:15.960 --> 0:06:19.200 other people that had some money, they made quite a 0:06:19.320 --> 0:06:23.880 quite a bit of profits on some of the left 0:06:23.880 --> 0:06:26.839 for dead Microsoft and others that were just you know, 0:06:27.160 --> 0:06:28.240 sold to very low levels. 0:06:28.400 --> 0:06:31.760 So that sort of this location sounds like it was 0:06:31.800 --> 0:06:33.160 a formative experience. 0:06:33.960 --> 0:06:36.640 Sure, and you know, many of these things I look at, 0:06:36.720 --> 0:06:39.320 you know growing up, you know, gas lines in the 0:06:39.360 --> 0:06:42.320 seventies and you know, we had real recessions back of 0:06:42.360 --> 0:06:45.520 the seventies and eighties. These days, you know, it sounded 0:06:45.560 --> 0:06:48.599 like an old, cranky, old guy. But when you you know, 0:06:48.680 --> 0:06:53.960 that's the challenge of prosperity that it doesn't really prepare 0:06:54.040 --> 0:06:57.599 oneself investors too, right, you know, if you always have 0:06:57.720 --> 0:07:00.400 the FED put, if you always have you know just 0:07:00.520 --> 0:07:04.800 QI forever, that that does have a lot of complacency. 0:07:04.839 --> 0:07:07.040 And you see it as you've gone from active to 0:07:07.040 --> 0:07:09.280 passive investing, people are like, well, why do I pay 0:07:09.760 --> 0:07:11.640 you know for active investing? I could just you know, 0:07:11.720 --> 0:07:15.040 it's easy. And now is dispersion has increased in fixed income. 0:07:15.680 --> 0:07:18.640 I think it's brings back, you know, the active investing. 0:07:18.680 --> 0:07:21.920 But you know, structurally there's there's a lot of money 0:07:21.920 --> 0:07:25.520 that's gone into to pass investing, which we believe will 0:07:25.560 --> 0:07:28.720 sew the seeds for the opportunity set for some time 0:07:28.760 --> 0:07:29.680 going forward. 0:07:29.600 --> 0:07:32.960 And arguably, passive doesn't work nearly as well on the 0:07:33.000 --> 0:07:35.000 fixed income side as it does on equities. 0:07:36.080 --> 0:07:40.320 Well, I mean again passive. You know it's nowadays if 0:07:40.360 --> 0:07:43.680 you look at the big banks, they're doing portfolio trading 0:07:44.480 --> 0:07:48.520 with large swaths of their institutional clients. And so someone 0:07:48.560 --> 0:07:51.440 will say I want give me a triple B single 0:07:51.480 --> 0:07:54.560 A exposure and these industries, and they go out and 0:07:54.600 --> 0:07:57.000 dial it up or down in terms of exposure. 0:07:57.440 --> 0:07:57.600 Uh. 0:07:57.800 --> 0:08:01.960 That creates opportunities within the trading market. So uh for 0:08:02.040 --> 0:08:05.400 our long short credit hedge fund, you know there's there's 0:08:05.440 --> 0:08:08.760 this locations and opportunities to trade, uh, to make money 0:08:08.760 --> 0:08:14.400 in those situations. But I mean, you know it's in 0:08:14.760 --> 0:08:19.640 these these markets as we as we pivot going forward. Again, 0:08:19.680 --> 0:08:22.800 if if you're saying I'm gonna earn five and change percent, 0:08:23.120 --> 0:08:26.440 you know my cash and you know, fixed income no 0:08:26.480 --> 0:08:30.120 problem to Fault rates are near zero. Now, fault rates 0:08:30.120 --> 0:08:32.480 are kind of skewed a bit because you do have 0:08:32.880 --> 0:08:34.760 perhaps in high yield. If you look at you know, 0:08:34.880 --> 0:08:38.600 these liability management exercises and other restructurings out of court, 0:08:39.240 --> 0:08:42.600 it doesn't default, but then there's a lesser consideration you 0:08:42.640 --> 0:08:45.520 get for your your claim. Uh, so it does factor enter. 0:08:45.679 --> 0:08:48.880 But you know, you've had a very benign default environment 0:08:49.360 --> 0:08:51.920 as we've had a lot of money printed for quite 0:08:51.960 --> 0:08:53.640 some time. If you look at the Fed's balance sheet, 0:08:53.760 --> 0:08:57.600 the M two that has been printed, you know there's 0:08:57.679 --> 0:09:00.600 there's been a great tailwind. Huh. 0:09:00.679 --> 0:09:04.040 Really interesting. So let's fast forward to nineteen ninety five. 0:09:04.880 --> 0:09:09.080 What led you guys to depart and co found King Street. 0:09:09.280 --> 0:09:14.040 So going from you know, First Boston banking, trading, distress proprietarily, 0:09:14.080 --> 0:09:18.040 then we started internal hedge fund at First Boston and 0:09:18.080 --> 0:09:20.199 that was from ninety one to ninety four, so I 0:09:20.320 --> 0:09:23.319 think about I already had started, in effect helped form 0:09:23.520 --> 0:09:26.520 to these businesses. And so at the end of ninety four, 0:09:27.240 --> 0:09:31.680 again many issues with First Boston, which became Credit Swiss, 0:09:31.679 --> 0:09:35.040 became ubs. They've I think I had five CEOs I 0:09:35.080 --> 0:09:37.960 worked under for the seven eight years I was there, 0:09:38.720 --> 0:09:41.880 and so we said we could do this, and my 0:09:41.960 --> 0:09:45.160 co founder and myself we left around a few months 0:09:45.200 --> 0:09:48.760 apart in ninety four form King Street started trading in 0:09:48.880 --> 0:09:52.840 ninety five. We never thought we'd start with the princely 0:09:52.880 --> 0:09:55.280 sum of four million dollars, which is what we started with. 0:09:55.320 --> 0:09:57.640 We thought, oh, we're gonna start with fifty. All these 0:09:57.679 --> 0:09:59.439 people are like, yeah, I'll give you five, I'll get 0:09:59.440 --> 0:10:02.240 you ten. You know, no problem in encouraging us to leave, 0:10:02.800 --> 0:10:05.040 So be it. We started with fort One of the 0:10:05.160 --> 0:10:09.679 first million dollars came from Jimmy Kine, who was chairman, yeah, chairman, 0:10:09.760 --> 0:10:11.640 CEO of Bear Stearns. I had met him through another 0:10:11.640 --> 0:10:15.760 friend of mine, Vince TC, and know him through golf 0:10:15.800 --> 0:10:18.680 and got to be friendly with him, and he heard 0:10:18.720 --> 0:10:20.719 what I was doing and he said, you know, I'm 0:10:20.760 --> 0:10:23.360 happy to give you a million dollars of my money 0:10:23.400 --> 0:10:27.000 to manage, and you can use my name in marketing, 0:10:27.080 --> 0:10:30.320 and so you know, it was it was quite comical 0:10:30.440 --> 0:10:33.760 because I have back then a list of references. Right. 0:10:33.800 --> 0:10:35.880 It felt like I was going for a job interview 0:10:36.000 --> 0:10:38.640 asking for money back then. And we were two guys 0:10:38.640 --> 0:10:41.080 twenty nine years old, as you know. My brother called 0:10:41.160 --> 0:10:44.520 us two guys capital and we would you go around 0:10:44.640 --> 0:10:48.320 all the usual suspects, begging for something, and we ended up, 0:10:48.360 --> 0:10:50.840 as I said, with four million. But you know, Jimmy 0:10:50.880 --> 0:10:54.000 took a personal pride and he took and people say, 0:10:54.040 --> 0:10:56.040 you mean I can call this guy he's CEO Bear 0:10:56.080 --> 0:10:58.000 Stearns said, I said, yeah, yeah, call him up. So 0:10:58.120 --> 0:11:00.480 he call him up and then immediately he'd called me opposite. 0:11:00.640 --> 0:11:02.120 You know, how did I do you get the money yet? 0:11:02.320 --> 0:11:04.640 So you know, it was it was, it was very humbling. 0:11:04.679 --> 0:11:07.959 It was a very sweet, you know mentor of mine 0:11:08.000 --> 0:11:10.560 as an Irish Catholic kid. You know, it's nice to 0:11:10.559 --> 0:11:14.520 have a rabbi such as such as Jimmy and Vince 0:11:14.679 --> 0:11:18.600 you know, introduced us. And also Vince was incredibly helpful 0:11:18.640 --> 0:11:22.360 so having to you know, fathers of King Street, if 0:11:22.400 --> 0:11:25.000 you will, And they asked for nothing in return except 0:11:25.200 --> 0:11:28.800 the satisfaction that they received by seeing us grow and prosper, 0:11:28.880 --> 0:11:33.040 which was again very very fortunate and blessed to have 0:11:33.120 --> 0:11:35.040 that those two people in my life. 0:11:35.080 --> 0:11:38.800 So from four million dollars you eventually grow assets over 0:11:38.880 --> 0:11:42.520 time to twenty six twenty seven billion dollars. That's an 0:11:42.600 --> 0:11:48.040 incredible track record over twenty five years. And I also 0:11:48.360 --> 0:11:52.520 can't help but notice it's been reported by places like 0:11:52.600 --> 0:11:57.120 Institutional Investor that you guys have distributed about eighty percent 0:11:57.640 --> 0:12:02.280 of those gains, which is really impressive. It tells me 0:12:02.640 --> 0:12:07.240 that you're concerned about scaling up too large. Tell us 0:12:07.240 --> 0:12:09.679 a little bit about why you kept the firm at 0:12:09.720 --> 0:12:14.080 a fairly modest size in terms of capital that you're trading. 0:12:15.360 --> 0:12:18.600 Well, I think there's opportunities that EBB and flow, and 0:12:18.640 --> 0:12:21.600 I think it's important to have the right structure, and 0:12:21.640 --> 0:12:24.240 so we have a number of business lines. We have 0:12:24.320 --> 0:12:29.880 our Cloudwise loan obligation business COLO business that is super 0:12:29.880 --> 0:12:33.640 interesting business. It does help feed into our long short 0:12:33.679 --> 0:12:36.800 credit business, which is our long standing business that we 0:12:36.840 --> 0:12:39.440 started in nineteen ninety five. We also have a number 0:12:39.440 --> 0:12:44.640 of drawdown businesses, drawdown meeting, drawdown credit, distress businesses, and 0:12:44.720 --> 0:12:48.920 those have longer duration attached to them, which is commensurate 0:12:49.080 --> 0:12:52.319 with the opportunities we're investing in. We also have a 0:12:52.360 --> 0:12:55.480 real estate business that we so used to be. The 0:12:55.720 --> 0:12:59.040 credit headphone business had what's called side pockets. A couple 0:12:59.040 --> 0:13:01.200 of years ago. We remove them and it's just the 0:13:01.280 --> 0:13:04.240 liquid long short credit business. And the side pockets come 0:13:04.280 --> 0:13:06.800 in the form of these draw down fund structures. That 0:13:06.920 --> 0:13:10.360 is something the industry has gravitated towards the last say 0:13:10.440 --> 0:13:11.719 ten years, and. 0:13:12.040 --> 0:13:14.440 Meaning as each of those things mature, they get paid 0:13:14.440 --> 0:13:16.360 out to the correct right LPs. 0:13:16.559 --> 0:13:18.760 Right, so you got three or three or one year 0:13:18.840 --> 0:13:22.200 extension perhaps which three are investing through harvesting and then 0:13:22.800 --> 0:13:27.360 payout traditional but they can vary, and so that's really 0:13:27.840 --> 0:13:30.640 having different buckets and one has to you know, it 0:13:31.080 --> 0:13:33.880 gets complicated because you have different investors in different buckets, 0:13:33.880 --> 0:13:36.800 and then there are different vintages and then they say, okay, 0:13:36.880 --> 0:13:39.400 I need distributions and you know which ventures you do, 0:13:39.440 --> 0:13:41.080 and the timing they can be, oh, I don't have 0:13:41.120 --> 0:13:44.200 money this year for next year. So there's there's a 0:13:44.280 --> 0:13:46.760 whole planning that goes on in terms of when you 0:13:46.840 --> 0:13:50.280 launch different funds. But it for for us in the 0:13:50.280 --> 0:13:53.400 long shore credit business, there's lots of lots of opportunities 0:13:53.600 --> 0:13:56.200 as a number of the people that we used to 0:13:56.200 --> 0:13:58.640 see all the time in the markets are no longer 0:13:58.679 --> 0:14:04.040 around and so that we believe has shrunk the competition, 0:14:04.160 --> 0:14:07.079 if you will, in the long shore credit trading business 0:14:07.160 --> 0:14:10.200 for stress to stress, and I think also it's it's 0:14:10.280 --> 0:14:12.520 where are we in the cycle? Do we ever do 0:14:12.559 --> 0:14:15.480 we believe that there will ever be a credit cycle? 0:14:15.559 --> 0:14:19.000 Do we think we'll ever have defaults again? Or you know, 0:14:19.040 --> 0:14:21.880 will we continue to grow? Depending on your math, we're 0:14:21.920 --> 0:14:24.760 I have two trillion of deficits and you know, then 0:14:24.960 --> 0:14:27.960 all these other amounts of debt around the world in 0:14:28.000 --> 0:14:31.640 the government side that is being printed to uh support 0:14:31.920 --> 0:14:34.880 global economies. I think at a certain point we see 0:14:35.120 --> 0:14:38.320 this competition for capital, if you will, between you know 0:14:38.360 --> 0:14:41.840 what the public sector, uh, the government sector, in the 0:14:41.960 --> 0:14:43.840 in the private sector is trying to you know. So 0:14:44.040 --> 0:14:45.680 I think it's gonna be hard for rates to go 0:14:45.800 --> 0:14:49.040 low because there's still you know, a lot of depths 0:14:49.040 --> 0:14:50.680 that's spending out there. I mean, think about the deaths 0:14:50.680 --> 0:14:54.000 thats we have when it's pretty much full employment, economy 0:14:54.040 --> 0:14:54.920 is still pretty strong. 0:14:56.080 --> 0:14:57.840 What are we one point eight trillion a year? 0:14:58.840 --> 0:15:01.680 I mean to some say two. You know, it always 0:15:01.920 --> 0:15:03.920 I see different numbers all the time. So it's always 0:15:04.000 --> 0:15:05.680 kind of like who's math, if you. 0:15:05.640 --> 0:15:10.320 Will, huh really interesting. And it seems like everybody and 0:15:10.360 --> 0:15:14.600 their brother managed to refinance both household and corporations in 0:15:14.640 --> 0:15:18.520 the twenty tens when rates were low, except Uncle Sam 0:15:18.640 --> 0:15:20.200 couldn't couldn't get around to it. 0:15:20.480 --> 0:15:24.280 Yeah, and you know you say that the I joke, 0:15:24.400 --> 0:15:29.760 the greatest asset and many people's portfolio is their thirty 0:15:29.840 --> 0:15:34.640 year two three percent mortgage, right, And so affordability has 0:15:34.800 --> 0:15:39.600 been problematic because of the supply, you know, we're short 0:15:39.760 --> 0:15:43.800 whatever five million homes, but the you know, the affordability 0:15:43.840 --> 0:15:48.720 is still because of that and other factors, has been difficult. 0:15:48.760 --> 0:15:51.720 So I mean, I think they're they're you know, it's 0:15:51.720 --> 0:15:54.840 a very it's a complicated landscape on the consumer. 0:15:54.480 --> 0:15:58.680 Side, to say the least. I mentioned earlier the Institutional 0:15:58.720 --> 0:16:04.840 Investor Lifetime Achievement Award you and your co founding partner received. 0:16:04.880 --> 0:16:06.960 Tell us what that meant to you. That is not 0:16:07.600 --> 0:16:12.280 something that many people get tagged with. I think there 0:16:12.320 --> 0:16:16.320 have been forty recipients of that from Institutional Investor. Tell 0:16:16.400 --> 0:16:17.800 us what that meant? 0:16:17.880 --> 0:16:23.480 That sort of recognition, It's an incredible honor and an 0:16:23.480 --> 0:16:28.600 honor shared by all the current and past, you know, 0:16:28.840 --> 0:16:32.840 people that worked at King Street and so we are 0:16:32.880 --> 0:16:36.920 some of the effort that has put forth over the 0:16:37.080 --> 0:16:40.800 thirty years, not just the partners, but and also the 0:16:40.840 --> 0:16:43.800 investors that believed in us and continue to believe in us, 0:16:44.880 --> 0:16:48.360 and counterparties, et cetera. And it sounds tripe, but it 0:16:48.440 --> 0:16:52.200 is very appropriate and true that, you know, we're just 0:16:52.440 --> 0:16:57.280 beneficiaries of, you know, some amazing people that we lucky 0:16:57.360 --> 0:17:02.360 to deem us worthy over the years. It's very humbling, 0:17:02.400 --> 0:17:05.840 it's very exciting, and it also you know, it's interesting 0:17:05.840 --> 0:17:08.840 because you know there's there's always well why now, why 0:17:08.880 --> 0:17:11.320 are you doing these podcasts? Or why would you do that? 0:17:11.640 --> 0:17:15.240 And I guess it's it's really we have a story 0:17:15.280 --> 0:17:18.480 to tell and I'm very proud of King Street and 0:17:18.560 --> 0:17:23.159 the people, and I think it's a great opportunity. And 0:17:23.200 --> 0:17:25.080 it also is a sign of the times where we are. 0:17:25.119 --> 0:17:29.080 And I think evolution personally and professionally as a firm 0:17:29.119 --> 0:17:33.080 as an institution is so critical and I think that's 0:17:33.119 --> 0:17:38.040 part of our staying power, is our desire to continuous improvement. 0:17:38.520 --> 0:17:42.240 And you know, you look back and people might say, well, 0:17:42.240 --> 0:17:44.879 why do you focus on the past? Well, you know, 0:17:44.960 --> 0:17:47.000 focus on the past so that there is a future. 0:17:47.280 --> 0:17:50.040 I think the Lifetime Achievement Award is it is kind 0:17:50.040 --> 0:17:52.200 of I thought they give it to dead guys whatever, 0:17:52.560 --> 0:17:55.240 But you know, we're not dead yet and don't plan 0:17:55.280 --> 0:17:59.119 it ever being so we're we're excited about the going forward. 0:17:59.880 --> 0:18:02.520 Like that concept you don't know where you're going unless 0:18:02.560 --> 0:18:04.720 you understand where you've already been. It makes a lot 0:18:04.760 --> 0:18:08.479 of sense. Let's talk a little bit about what you 0:18:08.520 --> 0:18:14.199 guys do you mentioned earlier stressed and distressed. I know 0:18:14.320 --> 0:18:17.680 that they're two very different things, but there's some nuance 0:18:17.760 --> 0:18:21.840 there help us understand the distinction between stressed assets and 0:18:21.960 --> 0:18:23.080 distressed assets. 0:18:23.600 --> 0:18:26.920 Yeah, I think it is kind of nuance in a way. 0:18:26.960 --> 0:18:31.359 I think, you know, distressed assets, you know, you're you're 0:18:31.640 --> 0:18:37.240 on your way to default most times or restructuring. Stressed assets, 0:18:37.840 --> 0:18:40.159 you know, can be out of favor assets. I think 0:18:40.200 --> 0:18:42.800 you're splitting hairs. You know. Some would say, oh, triple 0:18:42.840 --> 0:18:46.119 C bucket, that's all distressed, and if you look in 0:18:46.240 --> 0:18:49.439 single B, double B, oh, that's stressed. You know. I 0:18:49.480 --> 0:18:51.960 think it also depends on where we are on the 0:18:51.960 --> 0:18:56.280 cycle what can be stressed distressed. And also if you 0:18:56.320 --> 0:19:01.000 look at a stressed infrastructure situation, that might not be 0:19:01.200 --> 0:19:05.160 that wide in terms of total spread. So let's say 0:19:05.240 --> 0:19:09.120 you have you know, a thousand basis points over the 0:19:09.240 --> 0:19:13.000 treasury is a say, a distress situation. And then if 0:19:13.040 --> 0:19:16.080 you look at something that normally trades say one hundred over, 0:19:16.640 --> 0:19:20.600 but it's trading at two hundred over and that could 0:19:20.600 --> 0:19:24.040 be stressed. Now you would say, well, that's in high yield. 0:19:24.040 --> 0:19:26.880 That's nothing we can see a you know, twenty fifty 0:19:27.000 --> 0:19:29.919 hundred and two hundred spread widening or tightening, you know 0:19:29.960 --> 0:19:34.440 in high yield. Now that is I'm giving a historical perspective. 0:19:34.440 --> 0:19:37.040 It seems like the last couple of years, this is 0:19:37.080 --> 0:19:40.240 not your father's high yield market when they you know, 0:19:40.280 --> 0:19:43.119 high yield meant junk bonds, and these days high yield 0:19:43.240 --> 0:19:46.280 is trying to be an investment grade market given the 0:19:46.600 --> 0:19:51.160 security five ye these days you had the FED come 0:19:51.160 --> 0:19:53.400 in and push a lot of the banks and say, hey, 0:19:53.800 --> 0:19:55.840 you can't have a ton of leverage on the high 0:19:55.880 --> 0:19:59.480 yield issuance, and so they kind of help create the 0:19:59.480 --> 0:20:02.320 private credit market, if you will, or it went into 0:20:02.960 --> 0:20:08.080 loans and so and lack of covenant protection. But the 0:20:08.280 --> 0:20:12.400 the quality of the higher market is dramatically different than 0:20:12.560 --> 0:20:13.800 you know, once I came up. 0:20:14.080 --> 0:20:17.879 So it sounds like it's not so much that there's 0:20:18.040 --> 0:20:22.800 any real distinction other than a spectrum of risk of 0:20:22.840 --> 0:20:25.280 your debt is going to have a higher yield but 0:20:25.480 --> 0:20:28.879 greater risk that comes along with it, and stressed distressed 0:20:29.160 --> 0:20:31.000 are just different points along that spectrum. 0:20:31.080 --> 0:20:33.000 Is that fair? H? I think that's fair. I mean again, 0:20:33.080 --> 0:20:37.080 I'm sure some would have their own classification system as 0:20:37.080 --> 0:20:40.119 it were I would, I would just liken it and 0:20:40.240 --> 0:20:45.200 too you know, distressed as you know, real operational issues 0:20:45.400 --> 0:20:49.879 or financial issues that as I say, inevitably preponderance of 0:20:50.160 --> 0:20:54.320 outcomes is to a restructuring or a bankruptcy out of 0:20:54.400 --> 0:20:57.840 quart or others, and so versus the stress which is 0:20:57.880 --> 0:20:59.640 not always heading that way. 0:20:59.800 --> 0:21:03.760 So let's delve into not your father's high yield market. 0:21:04.240 --> 0:21:07.280 How does the high yield market differ today than when 0:21:07.320 --> 0:21:11.040 you begin in the nineties, and how much credit or 0:21:11.040 --> 0:21:13.800 blame lay at the feet of the Federal Reserve. 0:21:14.920 --> 0:21:17.200 Well, I wouldn't say it's the Fed. I think the 0:21:17.240 --> 0:21:22.240 markets have evolved dramatically. And if you look at markets 0:21:22.240 --> 0:21:25.720 around the world, you know, the US capital markets or 0:21:25.760 --> 0:21:28.800 the envy of the world, because the banks have had 0:21:28.880 --> 0:21:31.359 less and less responsibility, if you will, meaning they're twenty 0:21:31.400 --> 0:21:35.560 five percent banking a traditional banks and seventy five percent 0:21:35.960 --> 0:21:38.960 capital markets, which would be you know, all sorts of bonds, 0:21:38.960 --> 0:21:41.480 private and public. You go to Europe, it's seventy five 0:21:41.520 --> 0:21:44.440 percent banks. You go to developing markets, it's ninety five 0:21:44.520 --> 0:21:47.679 hundred percent banks. And so they're more susceptible boom and 0:21:47.720 --> 0:21:50.920 buck bus because there's that lack of you know, cushion 0:21:51.080 --> 0:21:54.240 and you know, and the more systemic in terms of 0:21:54.280 --> 0:21:58.439 their issues when when the economy turns. But if you 0:21:58.480 --> 0:22:00.880 go back to the question on you know, a high 0:22:00.960 --> 0:22:03.800 yield and how it's differentiated, there was just a lot 0:22:03.840 --> 0:22:08.560 more leverage back then. I remember doing the Allied Federated deal. Now, 0:22:08.760 --> 0:22:12.560 granted the ristory rate was higher, but you had you know, 0:22:12.920 --> 0:22:17.360 sixteen percent loans, seventy percent loans, You had you know, 0:22:17.480 --> 0:22:21.000 eight times ten times leverage, right, So so you have 0:22:21.119 --> 0:22:24.840 less leverage, you know, lower spread going in as they said, 0:22:25.119 --> 0:22:29.160 higher quality and then and the greater leverage is being 0:22:29.200 --> 0:22:32.880 found at times in some of the private credit or 0:22:33.160 --> 0:22:39.119 or other loans. But I think this extreme leverage is 0:22:39.200 --> 0:22:41.159 not as prevalent as it once was, and so I 0:22:41.240 --> 0:22:44.199 would I would argue that, you know, the markets have 0:22:44.400 --> 0:22:47.840 been more rational in terms of their approach to leverage 0:22:47.880 --> 0:22:51.080 than ever before, at least you know, my almost forty 0:22:51.119 --> 0:22:51.760 years doing this. 0:22:52.240 --> 0:22:56.719 So you also talked about the US markets versus you know, 0:22:56.800 --> 0:23:01.199 Europe and emerging markets. How much credit it goes to 0:23:02.640 --> 0:23:06.600 places like the FDIC or the SEC or is it 0:23:06.760 --> 0:23:10.320 just the full faith and credit of the US government 0:23:10.480 --> 0:23:14.520 standing on top of a very healthy macro economy. 0:23:14.440 --> 0:23:19.439 In terms of the market construct comparing us versus the 0:23:19.440 --> 0:23:22.359 rest of the world. I think, you know, there's a 0:23:22.760 --> 0:23:26.639 lot of credit due to the innovation, open regulation, but 0:23:26.800 --> 0:23:31.679 also involving regulation, and also it helps having these large banks. 0:23:31.720 --> 0:23:35.560 If you look at there hasn't been the big bang 0:23:35.920 --> 0:23:37.960 in Europe as they said it was going to be. Right, 0:23:37.960 --> 0:23:40.680 you look at the wrestling going on between you to 0:23:40.760 --> 0:23:44.320 credit and commerce bank, and you look at the German 0:23:44.480 --> 0:23:47.800 banks and some of the issues the stagnant aspect of 0:23:47.840 --> 0:23:50.960 that economy. If you look at savings products over there, 0:23:50.840 --> 0:23:54.600 there's not the full depth and breadth of products that 0:23:54.600 --> 0:23:54.880 we have. 0:23:55.320 --> 0:23:58.159 Even money market you don't have money market funds to 0:23:58.200 --> 0:23:59.400 the same degree you have in here. 0:23:59.400 --> 0:24:02.240 Correct. Lot of times they do it with you know, okay, 0:24:02.800 --> 0:24:05.439 like you have japan Post, you have Italian Post, you 0:24:05.440 --> 0:24:09.720 have Deutsche Post, you have you know, the regulatory environment 0:24:10.000 --> 0:24:14.159 for asset management in Europe is quite onerous and is 0:24:14.280 --> 0:24:17.280 difficult to passport. I mean, they have that these days, 0:24:17.280 --> 0:24:20.360 but there's still the reality is there's still a lot 0:24:20.359 --> 0:24:25.879 of inflexibility within the regulatory framework that and look, I 0:24:25.920 --> 0:24:27.679 you know, I've spent a fair amount of time with 0:24:27.720 --> 0:24:30.719 regulators and central bankers and participated in a number of 0:24:30.920 --> 0:24:35.440 forums and meetings on the topic. It does get complicated 0:24:36.119 --> 0:24:39.719 because Europe is Europe, but it's still a number of 0:24:39.760 --> 0:24:43.200 different countries within that. The US having this large, deep 0:24:43.240 --> 0:24:46.800 market does help. And look, I think we do have 0:24:46.960 --> 0:24:51.359 the innovation, sophistication, and I think the beneficiarrea is the 0:24:52.600 --> 0:24:56.520 world being able to buy sophisticated products that really are 0:24:56.600 --> 0:25:00.000 solution providers in all way shapes of form. 0:25:00.000 --> 0:25:03.560 I want to delve a little deeper into what makes 0:25:03.640 --> 0:25:08.199 King Street so unique, not just its performance, but the 0:25:08.240 --> 0:25:13.119 way you guys approach the world. You combine a fundamental 0:25:13.160 --> 0:25:18.560 approach with very disciplined and opportunistic trading approach, which is 0:25:19.080 --> 0:25:21.680 you know, usually those are two totally different animals. It's 0:25:21.760 --> 0:25:26.400 interesting to see, especially in credit and stressed and distressed 0:25:26.680 --> 0:25:30.400 see those two married. Tell us a little bit about 0:25:30.520 --> 0:25:35.359 how that set of strategies evolved and what sort of 0:25:35.400 --> 0:25:37.000 opportunities it's created for you. 0:25:37.760 --> 0:25:42.440 I think going back to history, which is nineteen eighty nine, Well, 0:25:42.480 --> 0:25:44.159 so you can go back to A seven with the crash, 0:25:44.240 --> 0:25:48.120 seeing the importance of tactical trading, go back to A nine, 0:25:48.240 --> 0:25:50.840 the formation of the distress the prop group, the distressed 0:25:50.840 --> 0:25:56.560 securities group on the trading desk, but being part of 0:25:56.600 --> 0:25:59.639 that when you had very wide bits spreads and you 0:25:59.640 --> 0:26:04.720 could see that execution and entering an exit position, there 0:26:04.800 --> 0:26:08.920 was a massive amount of differentiation and performance that could 0:26:08.920 --> 0:26:11.879 be created if one were to be able to trade 0:26:11.880 --> 0:26:16.160 it tactically. So for example, if things go quite wide 0:26:16.200 --> 0:26:18.879 and spreads where they can trade ten bond points wide, 0:26:19.960 --> 0:26:21.879 being able to buy on the bid side versus the 0:26:21.920 --> 0:26:26.120 as side. If it's fifty sixty market, for example, that's 0:26:26.200 --> 0:26:30.439 twenty percent differential. So just your entry point is massive. 0:26:30.480 --> 0:26:34.040 And also we call ourselves short long investors. 0:26:33.520 --> 0:26:35.560 And people say as opposed to long short. 0:26:35.400 --> 0:26:40.600 Correct because many of our biggest longs start out as shorts. 0:26:41.400 --> 0:26:42.880 And why that's important is. 0:26:43.240 --> 0:26:45.679 Meaning you cover the short and then go long correct 0:26:45.720 --> 0:26:47.199 at the end of the At the end of the 0:26:47.240 --> 0:26:50.640 short trade, it's like, oh, if it's good enough to cover, 0:26:50.840 --> 0:26:54.240 maybe we want to completely reverse our original views. 0:26:54.040 --> 0:26:58.000 Right, And so initially there's always the and we could 0:26:58.000 --> 0:27:00.520 sit there a bit of time and it could expensive 0:27:00.520 --> 0:27:02.920 carrying shorts, so you have to be mindful of that. 0:27:03.240 --> 0:27:07.119 It can take some time. However, it does enable us 0:27:07.160 --> 0:27:09.520 to have done a fair amount of work in advance, 0:27:09.640 --> 0:27:13.680 and so let's say something breaks, hopefully we've been short 0:27:13.720 --> 0:27:15.959 it and we have a fair amount of institutional knowledge 0:27:15.960 --> 0:27:20.120 about that situation, and then we can cover it or wait, 0:27:20.160 --> 0:27:24.040 it's going to get worse, because you know, oftentimes management 0:27:24.080 --> 0:27:27.000 comes out and they say, okay, they find some guy, 0:27:27.040 --> 0:27:28.920 they shoot him and say that was the bad guy, 0:27:28.960 --> 0:27:30.440 and now we're back and you're like, wait a minute, 0:27:30.480 --> 0:27:33.080 that guy, you know was the janitor. What do you 0:27:33.119 --> 0:27:35.760 mean or are we going to execute on this or that? 0:27:36.080 --> 0:27:38.199 And you say they've tried to execute you know, for 0:27:38.200 --> 0:27:39.760 the last three years, I have able to do it, 0:27:40.760 --> 0:27:45.080 so it really having a bit of perspective is important, 0:27:45.359 --> 0:27:48.800 and then you can then time it appropriately. Now we're 0:27:48.840 --> 0:27:51.920 not market timers, but it does give us, I think, 0:27:51.960 --> 0:27:57.639 a relative value perspective. So coupling the trading and understanding, okay, 0:27:57.640 --> 0:28:00.480 a lot of sellers are coming out, there's more coming out. 0:28:01.440 --> 0:28:06.120 Having that supply demand question answered is important as well. 0:28:06.480 --> 0:28:08.720 So I want to put some flesh on the bones 0:28:09.280 --> 0:28:12.640 of what it looks like combining the tactical with the fundamental. 0:28:12.880 --> 0:28:16.320 And I'm going to quote numbers from institutional investor because 0:28:16.359 --> 0:28:19.520 I know as a regulated entity, I know what I 0:28:19.600 --> 0:28:22.800 cannot say. I know you can't give specific numbers, but 0:28:22.840 --> 0:28:27.440 I could cite what institutional investor had observed. Twenty twenty 0:28:27.440 --> 0:28:29.880 two was the worst year for hedge funds since two 0:28:29.880 --> 0:28:31.760 thousand and nine. The S and P five hundred and 0:28:31.800 --> 0:28:37.560 down twenty percent, bonds down fourteen percent. King Street, according 0:28:37.560 --> 0:28:41.640 to II, was down only three point eight percent, a 0:28:41.880 --> 0:28:46.680 massive outperformance to either the SMP or the Bloomberg AG. 0:28:47.360 --> 0:28:50.160 Tell us what it was like trading in twenty twenty two, 0:28:50.840 --> 0:28:53.360 first time in forty years stocks and bonds were down 0:28:53.400 --> 0:28:54.520 double digits together. 0:28:55.200 --> 0:28:57.200 I would say it's set the table going back to 0:28:57.240 --> 0:29:00.400 say twenty twenty if you look in the pandemic when 0:29:00.680 --> 0:29:02.600 you know world's going to end, and then you know, 0:29:02.640 --> 0:29:05.800 a lot of equity injected, and then then we had 0:29:05.800 --> 0:29:09.560 the vaccine news came out, everything rallied, but there was 0:29:09.640 --> 0:29:13.000 so much stimulus being put and I think, you know, 0:29:13.920 --> 0:29:17.040 just let's say, I don't like losing money ever, and 0:29:17.400 --> 0:29:21.440 is my co founders say, you know, relative performance, but 0:29:21.480 --> 0:29:24.560 you can't eat your relatives. So it's just important to 0:29:25.240 --> 0:29:30.400 from our perspective, contextualize that. And so we are very disciplined. 0:29:30.440 --> 0:29:32.600 I think one of the things that we looked to 0:29:32.880 --> 0:29:35.200 was like, hey, let's go up in quality, up in liquidity, 0:29:35.680 --> 0:29:38.800 and that was a concern. I think one of the 0:29:38.840 --> 0:29:42.480 things took us by surprise was okay, you know how 0:29:42.560 --> 0:29:45.200 much inflation really rooted and how quickly and how high 0:29:45.200 --> 0:29:47.480 it went. So I'd say, you know, that was something 0:29:47.560 --> 0:29:50.360 we missed. Again, we always try to focus on what 0:29:50.400 --> 0:29:54.080 we did wrong and we correct those. Hopefully then the 0:29:54.240 --> 0:29:57.920 going gets better going forward trading in twenty two, as 0:29:57.920 --> 0:30:00.720 I said, I wouldn't say it's too differentiated, but again, 0:30:01.200 --> 0:30:03.880 you know, an absence of a true distress cycle, I 0:30:03.920 --> 0:30:06.080 think that it loses the sort of meaning. But if 0:30:06.120 --> 0:30:08.600 you look at you know, in twenty twenty there was 0:30:08.680 --> 0:30:11.680 a number of things that is really for me at 0:30:11.720 --> 0:30:13.560 more signature important time. 0:30:14.160 --> 0:30:17.760 So I want to talk about a few specific investment 0:30:17.880 --> 0:30:22.560 strategies that King Street does. In twenty seventeen, you launched 0:30:22.560 --> 0:30:25.880 a collateralized loan obligation business. Tell us a little bit 0:30:25.880 --> 0:30:26.880 about that strategy. 0:30:27.200 --> 0:30:31.680 So we've been investing in clos, mezzanine and opportunistically for 0:30:31.720 --> 0:30:35.120 a number of years, equity and et cetera. We've always 0:30:35.160 --> 0:30:39.160 had this credit expertise, and we felt that as a 0:30:39.560 --> 0:30:44.080 compliment for our investors and to benefit our launch short 0:30:44.120 --> 0:30:48.400 credit business. To have the CLO strategy was we think 0:30:48.440 --> 0:30:53.080 a distinctive manage and so we've had a terrific growth 0:30:53.480 --> 0:30:56.960 and successful business launch and continue to grow from strength 0:30:56.960 --> 0:30:59.760 to strength there in both the US and Europe issues 0:31:00.720 --> 0:31:04.200 during twenty twenty, there was a number of opportunities that 0:31:04.320 --> 0:31:07.280 came out to rescue finance a number of the companies 0:31:07.320 --> 0:31:11.440 we had relationships with, and so it has proven very 0:31:11.440 --> 0:31:16.400 complementary to our business. We describe our business in terms 0:31:16.400 --> 0:31:20.640 of overlapping circles, and that is that we will have 0:31:20.800 --> 0:31:24.720 different fund strategies and there might be a bond or 0:31:24.760 --> 0:31:27.800 a loan situation that we might see in different funds 0:31:27.800 --> 0:31:31.880 if they meet the investment criteria liquidity duration that we 0:31:32.120 --> 0:31:34.880 are looking for in that particular strategy, and so there 0:31:34.960 --> 0:31:41.959 is real synergistic effects and ability to analyze these situations 0:31:42.040 --> 0:31:42.880 quite rigorously. 0:31:43.200 --> 0:31:47.360 Let's talk about another overlapping business line, real estate. What 0:31:47.400 --> 0:31:49.080 do you guys do in the real estate. 0:31:49.320 --> 0:31:52.000 So we've been doing real estate, as we mentioned, first 0:31:52.120 --> 0:31:55.520 real estate finance and then real estate buying the equity 0:31:55.840 --> 0:31:59.600 or buying actual properties for quite some time a number 0:31:59.640 --> 0:32:02.560 of years ago. Go again, as I mentioned earlier, the 0:32:02.600 --> 0:32:06.040 demise if you will, the stop doing side pockets and 0:32:06.360 --> 0:32:09.200 you set up separate real estate funds. And so we've 0:32:09.320 --> 0:32:12.640 set up a number of funds. We've also invested in 0:32:12.840 --> 0:32:18.800 some specialties such as student housing in Europe. We've done 0:32:18.960 --> 0:32:22.720 last mile logistics, We've done movie studios. We've also done 0:32:22.720 --> 0:32:25.520 a number of financings as the banks have pulled back, 0:32:25.960 --> 0:32:29.720 has created great opportunities in that. And then more recently, 0:32:30.360 --> 0:32:34.800 we bought a data center business that specializes in AI 0:32:35.000 --> 0:32:38.600 and high performance compute, which is quite an exciting business. 0:32:38.640 --> 0:32:42.440 That's cul of war. I was reading about that and saying, wow, 0:32:42.520 --> 0:32:46.680 this seems to be a little off of what I 0:32:46.720 --> 0:32:52.680 was expecting. Liquid cooled, AI, data center, liquid cooled, what's 0:32:52.720 --> 0:32:53.200 that about? 0:32:53.760 --> 0:32:56.720 So to give you the history, So years ago we 0:32:57.000 --> 0:33:01.160 started focusing on growth lending, growth financing. You know, it's 0:33:01.200 --> 0:33:04.600 funny VC distress. There's a lot of similarities between the two. 0:33:05.600 --> 0:33:08.000 You know, you don't know what's going to happen with 0:33:08.080 --> 0:33:10.040 the company, is it going to make it not make it? 0:33:10.280 --> 0:33:14.040 So for example, Airbnb in door dash and twenty twenty 0:33:14.120 --> 0:33:18.120 we lent them money prior to their IPOs. Now, the 0:33:18.840 --> 0:33:23.120 v on the LTV loan to value the value oftentimes 0:33:23.120 --> 0:33:26.040 the disparity because when you ask a tech person what's 0:33:26.080 --> 0:33:30.640 this company worth, generally it's it's very very high numbers, 0:33:30.640 --> 0:33:34.600 which we don't always support from our valuation. But if 0:33:34.640 --> 0:33:38.720 the loan percentage is quite small five ten percent, then 0:33:39.040 --> 0:33:41.400 there's a margin of safety, and we have a lot 0:33:41.440 --> 0:33:44.840 of covenants to protect ourselves. And you say, we did 0:33:44.840 --> 0:33:47.920 some of that. We looked at GPU financing, which GPU 0:33:48.040 --> 0:33:53.040 is the Navidia chip, that's what they produce, and so 0:33:53.320 --> 0:33:56.760 we looked at some financings there. Couldn't get quite comfortable 0:33:56.800 --> 0:34:00.040 the depreciation curve because you know, Navidia comes out of every 0:34:00.040 --> 0:34:03.160 the other day with a new chip, and so we said, 0:34:03.200 --> 0:34:05.640 why lend your money if every two years you're going 0:34:05.720 --> 0:34:07.800 to have a new chip, and so worry about the 0:34:07.920 --> 0:34:10.960 value eroding on that chip. And so even though we 0:34:11.080 --> 0:34:13.840 over earning in terms of financing, now there'll be situations 0:34:13.840 --> 0:34:16.680 and opportunities that will make sense to lend in that sector. 0:34:17.120 --> 0:34:20.080 However that's we then you know, said, wow, this data 0:34:20.080 --> 0:34:22.359 center business is going to have legs for quite some time. 0:34:22.840 --> 0:34:28.360 We looked at the hyperscale business insanely competitive and said, okay, 0:34:28.440 --> 0:34:31.360 can't make a mark or find an edge there. And 0:34:31.400 --> 0:34:34.080 that's when we came up with colo Oar, which was 0:34:34.120 --> 0:34:38.320 selling itself. They had been doing liquid cooling for thirteen years. 0:34:38.360 --> 0:34:41.120 They started company thirteen years the company ten years ago, 0:34:41.880 --> 0:34:45.520 operational in a co location business in Santa Clara, California, 0:34:45.520 --> 0:34:49.439 in the heart of all these tech bohemoths, and they've 0:34:49.440 --> 0:34:54.200 been DGX certified by Navidia for over five years. Liquid cooling, 0:34:54.280 --> 0:34:57.560 the way we do it is it's full true liquid cooling. 0:34:57.560 --> 0:35:00.000 Meaning it's more efficient, more productive. 0:35:00.320 --> 0:35:02.759 Yeah, so just think about just the construct right, So 0:35:02.800 --> 0:35:04.719 you have the whole data center, you have three foot 0:35:04.800 --> 0:35:09.439 raise floors, you have an intake outtake of water that's 0:35:09.480 --> 0:35:13.719 ambient water temperature, goes, flows around and goes to the rack. 0:35:14.160 --> 0:35:17.120 Many will do liquid cooling to the rack, but separately, 0:35:17.200 --> 0:35:20.720 and that's very expensive because in effect you're retrofitting. Ninety 0:35:20.719 --> 0:35:24.080 five plus percent of the data centers are air cooled. 0:35:24.640 --> 0:35:27.880 As we know, air water is three thousand times more 0:35:27.920 --> 0:35:31.880 effective cooling than air. And so the PUE, which is 0:35:32.000 --> 0:35:35.520 the efficiency rating that they utilize, we're like one point 0:35:35.560 --> 0:35:39.400 three and many are one point five six, et cetera. 0:35:39.680 --> 0:35:42.920 So it's very efficient. You can have a denser facility 0:35:43.360 --> 0:35:45.880 and it can handle the AI chips. The other metrics 0:35:45.920 --> 0:35:49.520 that people use is the killowatz per cabinet, and so 0:35:49.640 --> 0:35:52.080 we can host up to two hundred and fifty kilowats 0:35:52.120 --> 0:35:55.319 per cabinet, where you know five ten twenty is these 0:35:55.320 --> 0:35:59.840 traditional data centers air cooled and so as Winning Gretzky 0:36:00.280 --> 0:36:02.400 used to say, I skate where the puck is going 0:36:02.440 --> 0:36:06.239 to be and the chips are all about, we need 0:36:06.280 --> 0:36:10.880 liquid cooling. Also, as we look to satisfy the future 0:36:10.880 --> 0:36:13.279 which will be inferenced versus the l M, the big 0:36:13.320 --> 0:36:17.000 training models, there will be a need for the data center. 0:36:17.040 --> 0:36:20.480 So we're having a number of conversations and across many 0:36:20.480 --> 0:36:24.560 different verticals. Our real estate group is executing, plus the team. 0:36:25.280 --> 0:36:29.120 It's super exciting and and it's again it's it's something 0:36:29.160 --> 0:36:32.239 that evolved out of our overlapping circles with the financing. 0:36:33.239 --> 0:36:35.920 You know, we we don't. There's always a method to 0:36:36.000 --> 0:36:38.759 it that we evolve into. 0:36:39.000 --> 0:36:44.240 Huh, really fascinating. So let's let's start out talking about 0:36:44.520 --> 0:36:50.000 why we're even talking. For for most of King Street's history. 0:36:50.080 --> 0:36:54.440 You've been a quiet firm. You You quoted one of 0:36:54.480 --> 0:36:57.759 your colleagues as saying, Hey, it's the spouting well that 0:36:57.880 --> 0:37:02.319 gets harpoons. Tell us why we're even having this conversation now. 0:37:03.040 --> 0:37:08.080 Evolution is so important, self improvement, evolution. I think markets change, 0:37:08.360 --> 0:37:11.839 and I think it's important to adapt to survive. As 0:37:11.880 --> 0:37:16.840 the trite saying, we might say, we look at the 0:37:16.880 --> 0:37:20.880 opportunities that we're facing, the business that we're building and 0:37:21.000 --> 0:37:23.279 have built, and they're quite excited about it. And I 0:37:23.320 --> 0:37:28.600 think it's important to communicate for our investors, for perspective, 0:37:29.560 --> 0:37:33.879 partners and people that to attract the best and make 0:37:33.920 --> 0:37:36.439 sure we have the best partners, to make sure our 0:37:36.480 --> 0:37:39.719 story's out there. It's gotten incredibly noisy, if you will, 0:37:39.760 --> 0:37:44.719 when everyone's out there. So to do nothing, I think 0:37:44.760 --> 0:37:48.720 would be a disservice to the people in the business 0:37:48.800 --> 0:37:52.640 and our and our partners. Really, as you know, the 0:37:52.680 --> 0:37:56.359 opportunities you know come to you know, as they say, 0:37:56.400 --> 0:37:59.759 squeaky will gets the grease and so one has to. 0:38:00.280 --> 0:38:04.560 You know, relationships are great. However, at times people you 0:38:04.600 --> 0:38:06.960 know would say, oh, King Street, they still in business, 0:38:06.960 --> 0:38:09.640 you know, because if if you're you're not out there 0:38:09.680 --> 0:38:12.520 with your LinkedIn presence or or I think it's just 0:38:12.520 --> 0:38:15.680 a sign. Look we're not on Instagram, so uh, no 0:38:15.800 --> 0:38:18.240 tiktoks from no no TikTok videos. 0:38:18.520 --> 0:38:24.480 You know, really really interesting. You know, there's some quotes 0:38:24.520 --> 0:38:26.920 of yours that I really like. One of the things 0:38:26.960 --> 0:38:30.600 you had said recently was what kills you in investing 0:38:30.719 --> 0:38:34.640 is a full sense of bravado, I have all the answers, 0:38:34.680 --> 0:38:37.600 I could beat this market, or that sort of approach. 0:38:38.239 --> 0:38:42.640 We say, the work is never done and knowledge reduces risk. 0:38:43.160 --> 0:38:52.240 Explain, well, it's it's from our perspective fairly simple. As 0:38:52.239 --> 0:38:57.400 investors that focus on out of favor, distress, bankruptcy, we 0:38:57.480 --> 0:39:04.200 see failure every day, and we would be incredibly delusional 0:39:04.320 --> 0:39:09.400 to think that without and and sometimes it's no fault 0:39:09.440 --> 0:39:13.360 of the companies, right, it's it's some unforeseen act. It's 0:39:13.400 --> 0:39:16.799 you know, some fraud was perpetrated on it, you know. 0:39:18.080 --> 0:39:23.200 But it's incumbent upon us to be tireless in our effort, 0:39:23.719 --> 0:39:30.040 as there's multitude of competitors out there globally that we 0:39:30.160 --> 0:39:33.720 go up against every day, and if we're not grinding 0:39:33.760 --> 0:39:37.360 it out, then you know there's there's going to be 0:39:38.120 --> 0:39:40.400 a shortfall, and we we don't plan on having that. 0:39:41.040 --> 0:39:44.239 Early in your career, someone would ask you what drives you, 0:39:44.360 --> 0:39:49.279 and your response would be paranoia and insecurity along the 0:39:49.320 --> 0:39:49.960 same lines. 0:39:50.280 --> 0:39:54.560 Yeah, you know, look paranoid insecurity it's it's it's I 0:39:54.800 --> 0:39:58.839 try to be humorous and colorful because investors come in 0:39:58.880 --> 0:40:03.120 and to own on you know that it doesn't always 0:40:03.520 --> 0:40:08.160 keep their attention. I think it's important to look at 0:40:08.239 --> 0:40:13.600 you know, we also talk about probability and you know proportionality, 0:40:13.960 --> 0:40:16.279 and so if you take those four things right, So 0:40:16.320 --> 0:40:20.000 the paranoid insecurity is like, Okay, did I do enough work? 0:40:20.320 --> 0:40:23.520 Does someone else know what can happen that I'm not seeing? 0:40:24.200 --> 0:40:27.280 It keeps that drive to continue to ask those questions. 0:40:27.280 --> 0:40:30.680 As we said, knowledge produces risk because you know, these 0:40:30.760 --> 0:40:35.520 is a moving picture. This is not a still life photograph. 0:40:35.760 --> 0:40:41.480 And so there's many different variables that happen through a business, 0:40:41.480 --> 0:40:45.280 through a cycle, through you lifetime owning, investment, and markets 0:40:45.280 --> 0:40:47.480 to change. So if you think about the number of variables, 0:40:48.080 --> 0:40:50.400 one would be kidding oneself to think that they can 0:40:50.920 --> 0:40:54.080 rest in their laurels. If you will, the work just 0:40:54.120 --> 0:40:59.239 begins when that investment is made and so in the 0:40:59.280 --> 0:41:02.040 paranoid it's ccurity. The only paranoid survivors, they say. And 0:41:02.719 --> 0:41:05.479 so we have to say, did I do enough work? 0:41:05.640 --> 0:41:08.839 Was there something I missed? Keeping one up at night 0:41:08.880 --> 0:41:12.319 that constantly looking at it? I think if you look 0:41:12.360 --> 0:41:14.920 at any piece of work, you know, an artist or 0:41:15.239 --> 0:41:18.319 whomever it is, they put some work, they do some work, 0:41:18.320 --> 0:41:19.960 they put it down, they come back, they look at 0:41:19.960 --> 0:41:22.120 it from another light and oh I missed that. Let me, 0:41:22.200 --> 0:41:25.200 let me continue to refine it. And so investments, in 0:41:25.239 --> 0:41:28.840 our mind are are bodies of work that need to 0:41:28.840 --> 0:41:33.960 be continually refined because the elements, if you will, continue 0:41:34.040 --> 0:41:37.920 to challenge it. And then you look at probability and proportionality. 0:41:38.400 --> 0:41:40.799 One has to be careful on that right because if 0:41:40.800 --> 0:41:45.960 you say, well, you know this hurricane is going to happen, 0:41:46.160 --> 0:41:49.839 you know the tragic hurricanes that we've had currently and 0:41:50.200 --> 0:41:54.439 just recently. Okay, if you had said never going to happen, 0:41:54.480 --> 0:41:56.080 we haven't had for a while, and if it happens, 0:41:56.080 --> 0:42:00.600 it's it doesn't create much damage. Well, what's the probability 0:42:00.680 --> 0:42:03.360 that that could could outcome? Now, if you look at 0:42:03.440 --> 0:42:06.080 geological faults and you're buying a piece of property, and 0:42:06.120 --> 0:42:08.880 you're building a data center, for example, and you say, well, 0:42:08.880 --> 0:42:12.160 one in one point six million or billion years that 0:42:12.680 --> 0:42:15.600 you know, I feel good about that, right. But if 0:42:15.640 --> 0:42:18.160 you're down in Florida and you're saying I'm not going 0:42:18.200 --> 0:42:20.759 to buy flood insurance now, question can you get it 0:42:20.800 --> 0:42:24.520 these days for it? Right? But like, think about the 0:42:24.520 --> 0:42:26.839 people the tragedy happened in North Carolina up and then 0:42:27.000 --> 0:42:28.680 you know, they didn't think they'd need flood insurance. 0:42:28.680 --> 0:42:32.080 They were deep inland and at a fairly high elevation, 0:42:32.200 --> 0:42:33.680 and yet they still got flooded out. 0:42:33.840 --> 0:42:37.880 Right. So these are things in terms of proportionality and probability, 0:42:38.800 --> 0:42:41.880 and proportionality is okay. You can create a scenario with 0:42:41.920 --> 0:42:45.520 any investment where you'd never make the investment. You could say, well, 0:42:45.520 --> 0:42:47.640 that could happen, and then you could say to certain, 0:42:47.680 --> 0:42:49.480 well it's one in a million years and it's two 0:42:49.520 --> 0:42:52.120 percent of the business. Is that really going to cause 0:42:52.120 --> 0:42:55.200 you to pass on that investment? So that's the constant 0:42:55.560 --> 0:42:59.840 interplay that we feel is critical to arrive. You know, 0:43:00.000 --> 0:43:01.879 the best decision you can make, and again the best 0:43:01.960 --> 0:43:05.040 things you make today tomorrow look at it again and say, 0:43:05.080 --> 0:43:05.799 oh I screwed up. 0:43:07.640 --> 0:43:10.720 You mentioned earlier you wanted to be a little public 0:43:10.840 --> 0:43:14.000 because you want to attract and retain the best employees. 0:43:14.480 --> 0:43:17.200 King Street has about two hundred and fifty people working 0:43:17.239 --> 0:43:20.800 for them, seventy of whom have been with the firm 0:43:21.360 --> 0:43:24.279 for ten or more years. That's pretty unusual in the 0:43:24.280 --> 0:43:26.839 hedge fund world. Tell us a little bit about the 0:43:26.880 --> 0:43:28.640 ten year club you guys created. 0:43:29.960 --> 0:43:33.160 Well, it really again, as I said at the outset, 0:43:33.200 --> 0:43:39.320 it's celebrating the people that comprise King Street, as I 0:43:39.360 --> 0:43:43.400 thought from the beginning, and talk to other people in leadership. 0:43:44.040 --> 0:43:48.040 Remember that your greatest asset goes down the elevator every 0:43:48.120 --> 0:43:50.080 day and you hope they come back up the next day, 0:43:50.560 --> 0:43:57.879 and so one has to again celebrate the teamwork. And 0:43:57.920 --> 0:44:00.640 that's the approach that we have a King Street talked 0:44:00.640 --> 0:44:05.880 about the overlapping circles and the ability to work on 0:44:05.960 --> 0:44:08.160 different aspects of the business. But it's very much a 0:44:08.200 --> 0:44:12.160 team and we look at the what what the operation team, 0:44:12.600 --> 0:44:15.359 the investment team, and the training team. There's a lot 0:44:15.400 --> 0:44:19.720 of collaboration that is constantly occurring, and people get paid 0:44:20.280 --> 0:44:23.399 on the well being of the overall firm, and so 0:44:23.680 --> 0:44:28.759 it forces that teamwork and collaboration, and I think it's 0:44:28.800 --> 0:44:33.120 important to celebrate events. You know, we we have outings, 0:44:34.000 --> 0:44:39.160 we have different groups celebating our women, our diversity, our 0:44:39.320 --> 0:44:42.319 charitable pursuits, or holiday party. We still have the old 0:44:42.320 --> 0:44:46.200 school holiday party that we do every year. I think 0:44:46.239 --> 0:44:51.080 the summer outings, et cetera. These are all we believe 0:44:51.239 --> 0:44:54.680 part of the building culture. You know, everyone the month end, 0:44:54.880 --> 0:44:58.920 everyone's birthday gets celebrated with you know, we had them 0:44:59.280 --> 0:45:01.440 happen to every day. So we say, wait, we'll just 0:45:01.440 --> 0:45:04.400 to once a month all the February birthdays you know which, 0:45:04.640 --> 0:45:06.480 and then you get to vote on it. So the 0:45:06.560 --> 0:45:09.960 little things that I think create the family, and you 0:45:10.000 --> 0:45:13.560 spend a lot of time with people, and if there's 0:45:13.600 --> 0:45:21.279 not that recognition of individuality and the effort put forth, 0:45:21.560 --> 0:45:27.440 then it's a miss. We believe it's again to celebrate together. 0:45:27.560 --> 0:45:29.640 What we've achieved is critical. 0:45:30.160 --> 0:45:34.240 I've heard a number of executives complain or at least 0:45:34.320 --> 0:45:38.440 raise the issue. It was very difficult to either create 0:45:38.600 --> 0:45:42.239 or maintain a corporate culture during the pandemic work from 0:45:42.280 --> 0:45:45.960 home remote. How have you guys navigated that and how 0:45:46.000 --> 0:45:50.480 important is corporate culture to a fund like yours? 0:45:51.360 --> 0:45:58.319 Well, culture is becomes what it becomes. It's you just 0:45:58.600 --> 0:46:03.640 everyone hopes that they're culture is sustainable and constructive and 0:46:03.719 --> 0:46:10.480 not toxic, and so we strive to make sure there's 0:46:10.560 --> 0:46:14.799 that communication openness. We do a lot of surveys. We've 0:46:15.000 --> 0:46:17.920 always trying to better our scores. It's self improvement we 0:46:17.960 --> 0:46:20.200 focus on. If you go back to a pandemic, it 0:46:20.239 --> 0:46:22.600 was hard, right because you're on zoom and so you 0:46:22.640 --> 0:46:27.560 know holiday party on zoom or you know scavenger hunts 0:46:27.560 --> 0:46:31.840 on zoom. It was how do we create these ties 0:46:31.920 --> 0:46:36.840 that bind us over what It was incredibly challenging personally 0:46:36.840 --> 0:46:41.240 and professionally for a lot of people. And frankly, the markets, 0:46:41.360 --> 0:46:43.120 as we all know back in the twenty twenty as 0:46:43.120 --> 0:46:47.480 our reference earlier, were brutal and working incredible amount of hours. 0:46:48.360 --> 0:46:51.160 The family challenges that people had with their kids at 0:46:51.160 --> 0:46:53.840 home were trapped in different places and so and the 0:46:53.960 --> 0:47:00.120 sicknesses and loss of life. So those are obviously in 0:47:00.160 --> 0:47:03.640 any regular time important, but we believe, you know, corporate 0:47:03.680 --> 0:47:08.080 culture has to play its role, uh and not to replace, 0:47:08.160 --> 0:47:11.920 but to be a part of it, to be supportive 0:47:12.000 --> 0:47:15.080 of of people. But it's it's and also think about 0:47:15.160 --> 0:47:18.920 like there's there's We have offices, as you've indicated in 0:47:19.600 --> 0:47:24.200 the US and Europe and Asia Middle East. How do 0:47:24.280 --> 0:47:28.960 we create that consistency, How do we create that that 0:47:29.520 --> 0:47:33.879 fabric that runs throughout And it's a lot of times 0:47:33.920 --> 0:47:37.680 we'll do our similar uh, you know, furniture and the like, 0:47:37.760 --> 0:47:39.400 so they feel like, oh, this feels like a King 0:47:39.440 --> 0:47:42.440 Street office. Things of that nature. Similar events and uh 0:47:42.560 --> 0:47:45.600 and the swag, if you will, that binds people. 0:47:46.160 --> 0:47:49.880 So your your co founder and partner of Francis BEYONDI 0:47:50.480 --> 0:47:55.680 retired a couple of years ago. Two questions about Francis 0:47:56.080 --> 0:47:58.680 First is he is he still sitting on the Yelle 0:47:58.920 --> 0:48:03.360 investment committee or has he fully retired from asset management? 0:48:03.640 --> 0:48:06.480 And then second, you know, what was that transition? Like, 0:48:06.560 --> 0:48:09.960 suddenly your co founder is no longer there every day? 0:48:10.040 --> 0:48:11.520 How did you adjust to that? 0:48:12.640 --> 0:48:16.480 Well, I believe the website's correct. He's still at Yale. 0:48:16.719 --> 0:48:20.759 I know I've spoken to him recently, but I know 0:48:20.880 --> 0:48:24.359 he's got a lot of pursuits and quite busy and 0:48:24.640 --> 0:48:27.439 with his family, and I think he's enjoying a well 0:48:27.480 --> 0:48:31.960 deserved time. He and I had an incredible twenty five 0:48:32.040 --> 0:48:35.640 years together. We call ourselves you know old married couple 0:48:35.800 --> 0:48:38.040 or you know brothers of King Street whatever they call 0:48:38.120 --> 0:48:41.600 us and two Guys Capital, two guys Capitol, right, so, 0:48:41.960 --> 0:48:44.239 which is funnily enough, my brother named that. We grew 0:48:44.320 --> 0:48:46.680 up in New Jersey and in East Brunswick and there 0:48:46.760 --> 0:48:49.960 was a two guys which. 0:48:49.800 --> 0:48:54.280 Is giant Alexander Kolder on the outside of that building. 0:48:54.360 --> 0:48:56.640 Am I remembering that correctly? In Hackensack? 0:48:56.840 --> 0:48:59.320 Well, well, I was from I grew up in East Buswick, 0:48:59.400 --> 0:49:01.759 so I don't know about the Hackensack one, but in 0:49:01.800 --> 0:49:05.440 the one it was a discount store and went bankrupt 0:49:05.440 --> 0:49:09.760 in the eighties, which Fernado was part of the Portfolo 0:49:09.920 --> 0:49:14.440 became then the so if it's funny history. But my 0:49:14.520 --> 0:49:17.680 brother recently gave me a shirt you know, two Guys Capital, 0:49:17.719 --> 0:49:20.960 and we've got on a website somewhere. But anyway, so 0:49:21.000 --> 0:49:24.839 I had a saving events there, but no so, as 0:49:24.880 --> 0:49:28.719 I said earlier, having this team and this partners with 0:49:28.840 --> 0:49:33.440 us over thirteen years on average and having mds thirty 0:49:33.480 --> 0:49:35.840 eight plus mds with us over ten years on average, 0:49:36.160 --> 0:49:40.760 we've had a very deep, deep bench and fortunate to 0:49:41.120 --> 0:49:44.840 have incredible depth and breadth to the organization where we 0:49:44.880 --> 0:49:48.360 didn't miss a beat, and you know that's that's something 0:49:48.440 --> 0:49:52.760 I think testament to the culture that fran and I 0:49:52.800 --> 0:49:56.320 built the first twenty five years, which we hopeful we'll 0:49:56.960 --> 0:49:58.680 continue for many, many years to come. 0:49:59.200 --> 0:50:02.480 Let's jump to our favorite questions that we ask all 0:50:02.520 --> 0:50:06.640 of our guests, starting with what have you been watching 0:50:06.680 --> 0:50:09.040 these days? What's been keeping you entertained? 0:50:09.520 --> 0:50:12.560 Well, I've been watching the Mets a bit lately. I 0:50:12.600 --> 0:50:14.160 went to my first Mets game and. 0:50:14.080 --> 0:50:16.440 In October, which I can't remember the last time you 0:50:16.480 --> 0:50:19.760 could watch the Mets in October having grown up online. 0:50:19.840 --> 0:50:22.160 Yeah, well, yeah, I mean I grew up in New 0:50:22.239 --> 0:50:25.359 Jersey and my first Met game was nineteen sixty nine, 0:50:25.360 --> 0:50:28.279 which when they went in the World Series. Yeah, from 0:50:28.320 --> 0:50:32.160 a despicable like worst team ever. I think Chicago White 0:50:32.160 --> 0:50:35.960 Sox had taken that over. But anyway, so we went, 0:50:36.800 --> 0:50:39.279 you know there, watch some of that. Also, I'm a 0:50:39.640 --> 0:50:41.960 Knicks fan. Is went to Villanova and they call him 0:50:41.960 --> 0:50:46.240 the Nova Knicks. Funny story. Years ago, I was fortunate 0:50:46.320 --> 0:50:49.600 enough Jay Wright, who was the coach of Villanova, invited 0:50:49.640 --> 0:50:53.920 me to speak to the team before the start of 0:50:53.960 --> 0:50:57.560 the season. They were in New York, and you know, 0:50:57.719 --> 0:51:00.359 talking to the team, and I, you know, I said 0:51:00.360 --> 0:51:03.319 to him, guys, I'm really really nervous here. You know, 0:51:03.800 --> 0:51:07.759 twenty eighteen, they were reigning national champions and if you 0:51:07.760 --> 0:51:09.960 guys don't win the championship like they're, don't look at 0:51:10.040 --> 0:51:12.200 me and blame me. And they were kind of looking 0:51:12.200 --> 0:51:16.920 at me quizzically. And I picked one of the young players, 0:51:18.000 --> 0:51:22.000 young freshmen, and I sat down right across from right 0:51:22.080 --> 0:51:23.759 up in his face, and I said, you know, look, 0:51:23.920 --> 0:51:26.960 I'm really nervous. I got this big meeting and you 0:51:27.080 --> 0:51:31.400 got to help me, you know, can you what do 0:51:31.440 --> 0:51:34.640 you say to me? You know? And he had like 0:51:34.719 --> 0:51:36.879 deer in the headlights. Look, he was eighteen year old kid. 0:51:36.880 --> 0:51:39.279 He was sort of like this, you know, old guy 0:51:39.400 --> 0:51:43.480 with supposedly you know, successful guy coming in begging me 0:51:43.520 --> 0:51:48.840 for advice, you know. And he said like quizzically, like 0:51:49.800 --> 0:51:52.920 you can do it. And I said yeah. And it 0:51:53.000 --> 0:51:55.959 was funny watching the faces of all the older upper 0:51:55.960 --> 0:51:57.680 class and they were laughing because they knew I was 0:51:57.760 --> 0:52:00.719 just trying to see and I said, and I said, 0:52:01.400 --> 0:52:03.520 it was interesting because Jay Wright had called me like 0:52:03.560 --> 0:52:07.319 four times in advance because it was so but you 0:52:07.360 --> 0:52:10.480 go back to leadership and culture. It was so important 0:52:10.719 --> 0:52:12.680 with you want to make sure I was what message 0:52:12.680 --> 0:52:15.279 I was going to give, And I said to the team, 0:52:15.360 --> 0:52:17.839 I said, see, you all can be leaders. You all 0:52:17.880 --> 0:52:20.640 can inspire. And when you're on the court and Jay 0:52:20.760 --> 0:52:23.880 is you know fifty hundred feet away, who's going to 0:52:23.960 --> 0:52:26.600 inspire and lead each other? And you can't just rely 0:52:26.680 --> 0:52:28.680 on the coach. You got to look to each other 0:52:28.719 --> 0:52:32.319 for leadership and to sponsor. And that's what when I 0:52:32.360 --> 0:52:34.160 talked to my team and how do we have the culture? 0:52:34.239 --> 0:52:37.560 How do we continually have that leadership If the partner 0:52:37.640 --> 0:52:39.600 is not in the room, who's going to take that 0:52:39.640 --> 0:52:43.880 mantle and who's going to push forward? And so on 0:52:43.960 --> 0:52:46.600 the things that I ingest. I got to have a 0:52:46.640 --> 0:52:48.400 lot of intake to have outtake, right because I got 0:52:48.440 --> 0:52:50.160 to do a lot of meetings. So I got to 0:52:50.200 --> 0:52:54.359 find that time to refill the tank with information. And 0:52:54.440 --> 0:52:58.399 so you know, on stuff I'll watch, whether it's if 0:52:58.400 --> 0:53:02.320 it's not sports, it will be some you know, mindless 0:53:02.360 --> 0:53:04.600 spies things I like sort of because it's I like 0:53:04.640 --> 0:53:06.520 to travel and see things around the world and different 0:53:06.560 --> 0:53:10.600 cultures and understand that and history, and so that usually 0:53:10.719 --> 0:53:12.680 wraps up and say a spy things. 0:53:13.239 --> 0:53:16.160 I'm gonna give you a recommendation only because I watched 0:53:16.160 --> 0:53:18.919 this on the flight back from Europe and it's dead 0:53:19.000 --> 0:53:23.720 center of what you're talking about. The Ministry of Ungentlemanly 0:53:23.840 --> 0:53:31.439 Warfare is essentially Churchill's Special Teams creation as a way 0:53:31.480 --> 0:53:35.759 of fighting Nazi submarines during World War Two. If you 0:53:36.000 --> 0:53:40.920 like global spy stuff and history, this is right in 0:53:40.960 --> 0:53:41.720 your sweet timet. 0:53:41.960 --> 0:53:44.200 I wrote it down and we'll put it on the 0:53:44.239 --> 0:53:44.879 list for sure. 0:53:45.400 --> 0:53:50.120 Absolutely, and again we're recording this in October. I can't 0:53:50.120 --> 0:53:52.480 remember the last time I was this excited about a 0:53:52.640 --> 0:53:59.200 next season, Like, even injured, really distinguished themselves last year's playoffs. 0:53:59.200 --> 0:54:02.000 You know you could see, hey, if they were full strength, 0:54:02.200 --> 0:54:06.640 they could have gone pretty deep into uh to the finals. 0:54:07.160 --> 0:54:11.520 Yeah, I'm super excited for this season and and sort 0:54:11.520 --> 0:54:13.600 of seeing what they could do as well. 0:54:14.080 --> 0:54:17.880 So you mentioned some of your mentors. Tell us about 0:54:17.960 --> 0:54:20.200 the people who helped shape your career. 0:54:21.160 --> 0:54:24.520 Well, you know, I mentioned Jimmy Kine and Vince. 0:54:24.320 --> 0:54:27.080 Tc They were the Vince Tincy was where. 0:54:27.000 --> 0:54:31.600 Vincent tc uh is on the number of boards to 0:54:31.640 --> 0:54:36.439 this days. He was Banking Commissioner State of New York. 0:54:36.480 --> 0:54:40.080 He was Urban Development chair. He had been a tax lawyer, 0:54:40.160 --> 0:54:43.200 he was the commodities trader. So he had this incredible 0:54:43.280 --> 0:54:48.480 varied career and life and quite successful entrepreneur, and so 0:54:48.560 --> 0:54:51.799 he's always a wealth information contacts and always great great 0:54:51.800 --> 0:54:55.880 advice and perspective. And Jimmy of course ran Barons Stearns 0:54:55.880 --> 0:55:01.560 obviously unfortunate ending to a storied career, but he was 0:55:02.000 --> 0:55:04.160 very helpful in giving great advice. 0:55:04.040 --> 0:55:09.320 Right legendary CEO of Bear Stearns. Let's talk about some books. 0:55:09.360 --> 0:55:11.240 What are your favorites? What are you reading currently? 0:55:12.200 --> 0:55:15.280 I would say book wise, just let's say a genre 0:55:15.680 --> 0:55:18.760 books because I listened to them. I'm not a big 0:55:19.239 --> 0:55:21.920 reader because I read so much in terms of research 0:55:22.000 --> 0:55:25.600 and consultants and sell side and our own internal research, 0:55:26.080 --> 0:55:30.480 plus the papers, et cetera. And I try to ingest 0:55:30.520 --> 0:55:34.319 a lot there and then content deeper content on the 0:55:34.360 --> 0:55:37.839 weekends and then you know, just number of emails et 0:55:37.840 --> 0:55:43.080 cetera you go through. So I'll listen to different whether 0:55:43.120 --> 0:55:48.279 it's leadership or let's self help type things, but it's 0:55:48.320 --> 0:55:51.960 more about I think, the self improvement and so how 0:55:51.960 --> 0:55:54.680 do you get the most out of life if you will? 0:55:54.680 --> 0:55:58.680 There's I love hacks if you will, in terms of 0:55:58.719 --> 0:56:02.439 health hacks or you know, efficiency hacks. I think that's 0:56:02.600 --> 0:56:06.200 qurrically important technology to utilize to its followers. So that 0:56:06.280 --> 0:56:10.920 that's sort of the focal point. Let's talk and bye 0:56:11.000 --> 0:56:14.560 on that. Just sorry is I found that blinkst is 0:56:14.960 --> 0:56:18.840 a great thing to utilize because the website, well, blinkest 0:56:18.920 --> 0:56:23.080 is sort of the reader's digest version of books, because 0:56:23.120 --> 0:56:26.120 most books they have a concept, interesting concept, and they 0:56:26.160 --> 0:56:30.040 spend two three hundred pages saying same thing seven different ways, 0:56:30.480 --> 0:56:33.000 you know, you know, trying to convince you that that 0:56:33.239 --> 0:56:35.600 versus blink is like, all right, here's the concept. You're like, okay, 0:56:35.600 --> 0:56:36.720 it makes sense. Interesting. 0:56:37.120 --> 0:56:41.399 And next, one of my partners likes to say most 0:56:41.400 --> 0:56:45.680 books should be magazine articles, most magazine articles should be tweets, 0:56:45.680 --> 0:56:48.799 and most tweets should be deleted. And that's his same 0:56:48.920 --> 0:56:52.439 same sort of concepts as blinkst. So now we're down 0:56:52.440 --> 0:56:56.680 to our final two questions. What sort of advice would 0:56:56.680 --> 0:57:00.040 you give to a recent college grad interested in a 0:57:00.080 --> 0:57:02.400 career and either stressed or distressed investing. 0:57:04.040 --> 0:57:10.880 Well, there's the critical importance of analytical rigor, and so 0:57:12.040 --> 0:57:15.759 if you're recent college gradu you can't necessarily go back 0:57:15.800 --> 0:57:18.360 and take the courses that would be helpful. And so 0:57:18.800 --> 0:57:21.640 it's if you see some of the Ivy League kids, 0:57:22.640 --> 0:57:27.480 they don't have the accounting background. For example. I think 0:57:27.520 --> 0:57:32.280 critical thinking is important. I think having some understanding of 0:57:32.960 --> 0:57:36.880 the legal framework as that's become has always become such 0:57:36.880 --> 0:57:41.720 a big deal to get into let's say stress distress 0:57:41.760 --> 0:57:46.680 out of favor. Look, there hasn't been as much interest, 0:57:46.960 --> 0:57:49.840 frankly because the tech world has been such a you know, 0:57:50.440 --> 0:57:55.560 robust world, and so it's important again, as I said, 0:57:55.600 --> 0:57:59.280 to work in the in the credit business to understand 0:57:59.760 --> 0:58:03.560 the those covenants, understand those companies, to get a generalist 0:58:03.600 --> 0:58:07.720 type experience, because one never knows is it the utility sector, 0:58:07.760 --> 0:58:11.600 is that the energy sector, Is it the TMT sector 0:58:12.120 --> 0:58:16.200 that will have issues or asbestos or you know, different issues, 0:58:16.240 --> 0:58:17.920 and then you're like, oh, I'm an expert in this. 0:58:18.080 --> 0:58:19.760 But at the end of the day, if you understand 0:58:19.760 --> 0:58:24.440 casual generation, you understand balance sheets, you understand legal framework accounting, 0:58:25.320 --> 0:58:30.320 then you can kind of learn most valuations frameworks. 0:58:30.840 --> 0:58:33.880 Really interesting and our final question, what do you know 0:58:33.960 --> 0:58:37.520 about the world of distressed credit today you wish you 0:58:37.560 --> 0:58:40.000 knew back in nineteen eighty seven when you were first 0:58:40.000 --> 0:58:40.760 getting started. 0:58:43.000 --> 0:58:46.840 Well, I guess having the hindsight is twenty twenty perspective 0:58:46.960 --> 0:58:51.080 on markets in general. I think it's important, you know, 0:58:51.160 --> 0:58:57.160 pivoting globally. Also, the let's say, the broad product suite 0:58:57.200 --> 0:59:03.360 that we now have, I think are are are super interesting, informative. 0:59:04.560 --> 0:59:08.560 I I I never would have thought that we would 0:59:08.640 --> 0:59:13.160 rebound so easily and quickly in so many different difficult times. 0:59:13.600 --> 0:59:16.760 And that that kind of me speaks to the resiliency, 0:59:17.360 --> 0:59:21.000 you know, of of markets and and the resilt you know, 0:59:21.040 --> 0:59:25.240 the commitment that the governments et cetera had to uh, 0:59:25.840 --> 0:59:28.120 you know, bail us out time and time again. And 0:59:28.160 --> 0:59:32.000 so now thirty five plus trillion debt we got, you know, 0:59:32.920 --> 0:59:35.600 massive amount of debt and to show for it since 0:59:35.880 --> 0:59:38.840 eight Uh you know, we'll see how it all works out. 0:59:39.120 --> 0:59:45.680 But I think it's it's really the the sophistication UH 0:59:45.880 --> 0:59:52.080 and innovative nature of let's say, security design UH has 0:59:52.160 --> 0:59:56.080 been enabled to have the flexibility of capital that has 0:59:56.320 --> 0:59:59.840 been transformative certainly for the US count markets and then 1:00:00.240 --> 1:00:03.520 then finds its way into other markets. But it enables 1:00:03.840 --> 1:00:08.240 you know, people say traffickers and tragedy. You know, it's 1:00:08.320 --> 1:00:10.680 it's interesting. We had, you know, one of one of 1:00:10.720 --> 1:00:14.000 the investors going to allocate ESG and he said, well, 1:00:14.160 --> 1:00:17.520 you know, distress, it's not ESG friendly. I said, well, 1:00:17.680 --> 1:00:20.880 we're one hundred percent of ESG. We're trying to have 1:00:21.000 --> 1:00:24.280 companies help companies survive and you know they have Batty 1:00:24.360 --> 1:00:28.120 is Chusco. We're trying to transform them into into productive 1:00:28.840 --> 1:00:32.160 companies that are you know, doing better think about environment. 1:00:32.200 --> 1:00:34.200 They might have had some spill that they had a 1:00:34.200 --> 1:00:37.240 big liability from, or the governance was bad. That's why 1:00:37.280 --> 1:00:39.520 they were, you know, in distress because it's some guy 1:00:39.520 --> 1:00:42.560 who's stealing money or what have you. So you know, 1:00:42.560 --> 1:00:44.120 there's a number of things that we've been able to 1:00:44.200 --> 1:00:48.000 prove bon bringing new management or cleaning up environmental issues 1:00:48.000 --> 1:00:50.200 that then the company valuation reabount it. 1:00:50.800 --> 1:00:53.440 Thank you, Brian for being so generous with your time. 1:00:53.560 --> 1:00:57.560 We have been speaking with Brian Higgins. He is co 1:00:57.640 --> 1:01:01.800 founder and managing partner at King Street. If you enjoy 1:01:01.880 --> 1:01:05.280 this conversation, check out any of the past five hundred 1:01:05.360 --> 1:01:09.160 or so discussions we've had over the past ten years. 1:01:09.600 --> 1:01:14.480 You can find those at iTunes, Spotify, Bloomberg YouTube, wherever 1:01:14.560 --> 1:01:17.640 you find your favorite podcast, and be sure and check 1:01:17.640 --> 1:01:21.400 out my new podcast, At the Money, short ten minute 1:01:21.440 --> 1:01:27.480 conversations with experts about specific topics involving your money, earning it, 1:01:27.640 --> 1:01:31.640 spending it, and most importantly, investing it. At the Money 1:01:31.720 --> 1:01:35.360 wherever you find your favorite podcasts or in the Masters 1:01:35.440 --> 1:01:38.120 and Business feed. I would be remiss if I did 1:01:38.120 --> 1:01:41.440 not thank the crack team that helps put these conversations 1:01:41.440 --> 1:01:44.959 together each week. John Wasserman is my audio engineer. Anna 1:01:45.040 --> 1:01:48.160 Lucas my producer. Sean Russo is my head of research. 1:01:48.520 --> 1:01:53.200 Sage Bauman is the head of Bloomberg Podcasts. I'm Barry Retults. 1:01:53.440 --> 1:01:58.680 You've been listening to Masters in Business on Bloomberg Radio. 1:02:00.160 --> 1:02:02.000 What Baths